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Amazon Media Category, Unbox Doing Well, Company Reports

1 Feb, 2007 By: Jessica Wolf

Amazon.com wrapped 2006 with a popular new digital-download service Unbox and marked sales gains across product categories, the company reported.

For the full year, net sales increased 26% to $10.7 billion, compared to $8.49 billion in 2005. Sales in the site's media category — which makes up 66% of Amazon's product sales mix and includes books, music, all video formats, magazines, video games and computer software — were up 25%. Sales of electronics and general merchandise were up 55% for the year.

Net income was down 47% year-over-year to $190 million. Operating income declined 10% to $389 million, compared to $432 million in 2005, due mainly to increased spending on technology and content.

Part of that increased spending on technology can be attributed to the launch of the Unbox digital service, which Amazon.com executives said is off to a good start.

“We continue to add selection and we are getting very good repeat customer performance back to our site so we're very pleased from that perspective,” said Tom Szkutak, Amazon SVP and CFO.

The initial response to Unbox is encouraging, added Jeff Bezos, company founder and CEO.

“We're seeing especially strong performance among TV episodes and hard-to-find video,” he said. “Among all of our category offerings it has among the highest repeat rates.”

Amazon will continue to add software engineers and computer scientists to the staff as it continues investing in its technology and content, according to the company's year-end financial report.

For the fourth quarter of 2006, sales increased a record 34% to $3.99 billion. Net income for the quarter was $98 million, down 97% from 2005's $199, primarily thanks to an income-tax expense increase to $130 million.

Executives were especially pleased with the year's overall sales growth in the electronics and general-merchandise category, but declined to break out how much of the growth could be attributed to products such as new gaming platforms, Sony's PlayStation 3, Nintendo's Wii and Microsoft's Xbox 360.

In 2006 Amazon started carrying both high-definition disc formats, Blu-ray Disc and HD DVD, and upped its commitment to the HDTV set shopper.

Amazon hired the former head of Best Buy's boutique home theater retail arm, Magnolia Entertainment, to train a staff of customer service representatives who are on call at all times to help Amazon HDTV shoppers. If customers have questions about a set, they can click on a link, enter their phone number and a service rep will call them immediately or at a specified time.

After a shopper purchases a set, Amazon delivers it and sets it up for the consumer, running through a tutorial of how to work the TV, as well.

It's a “white glove delivery” that mitigates a lot of apprehension about the online buying process for HDTV sets, Noah Herschman, director of audio/video for Amazon's North American sites told Home Media Magazine in August.

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